Refinance to access equity

What is equity in my home?

Equity in your home loan is the portion of your home’s value which is not encumbered by a mortgage – it’s the part that you own. Equity changes over time, with things like market fluctuations and your repayments, but in general, your equity, over the life of a loan, will increase.

How do I work out how much equity I have?

Simply find out your home's current market value. Subtract how much of your loan is still outstanding, and then the remaining figure is your equity.

For example, if your home is currently valued at $800,000 and you have $200,000 left to pay on your mortgage, your equity will be $600,000.

What can my equity be used for?

As it builds up, home equity becomes a handy ‘nest egg’. It can be used for a variety of things such as:

• Home maintenance, or renovations.
• Buying an investment property.
• A much-needed holiday.
• Other investments, such as stocks and shares.
• Paying off debts.
• Buying a boat, a car or another big purchase.

So how do I access my home equity through refinancing?

If you find that you have enough home equity to fulfil your needs, one of the ways you can access it is by refinancing your home loan.

That means, taking out a new loan to pay off your existing loan. But, instead of just borrowing enough to pay off your loan, you borrow against the current value of your house to finance whatever purpose you require. (see above).

What are the pros and cons of accessing my home equity?

The pros of accessing your home equity:

• It can provide extra cash when you need it.
• When refinancing you may be able to opt for a lower interest rate.
• Accessing money this way may have a much lower interest rate than a personal loan or a credit card, for example.

There are also a few cons you may want to take into consideration before refinancing to access your equity:

• You are increasing your debt.
• Your monthly payments may be higher.
• You may be subject to fees and charges when refinancing.

Are there other ways of accessing my home equity?

Refinancing is just one way of accessing your home equity, there are other ways that you can borrow against it, such as:

• Line of credit loans.
• Home-loan top-ups.
• Renovation loans.
• Seniors Equity loans.

What things should I consider when refinancing to access my home equity?

Refinancing to access your home equity also gives you the chance to make sure you’ve got the home loan that suits you. Take advantage of the opportunity, it could save you money and make the loan cheaper. Here are a few things to consider:

• Assess your current home loan. What do you like, what would you like to change?
• What is your current home loan interest rate? In an ideal world you’ll be looking for a lower rate.
• Do you want a variable or fixed rate? A fixed interest rate will give you the certainty of knowing exactly what your repayments will be during the fixed period, but a variable rate will give you more flexibility.
• Do you want new features? Features like an offset account or redraw facility. Things that will let you pay extra into your loan or offset your savings against the interest payments. Used wisely, these features can help you pay off your loan sooner.
• Consolidate other debts. It’s a chance to merge all of your debts into one, regular payment at a low interest rate. So, you feel more in control of your finances.

Where can I compare home equity loans?

At iSelect we’ve partnered with Lendi to make it easier to find a great deal on your home loan*. Click here to get started comparing from a range of lenders online, or give Lendi a call on 1300 186 260.

Last updated: 10/05/2022